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Futures & Options Articles
February 16, 2005
Swing Trader’s Insight Update
by Scott Hoffman, Senior Broker & CTA
Stock Index Futures
Stock futures took a roller coaster ride last week. After a small flag pattern on Monday and Tuesday, we decisively broke under 1200 on Wednesday, dropping back to important support around 1190. The inside day on Thursday helped us springboard higher on Thursday, leaving S&Ps in a position to test resistance at 1210 this week. The inside day/narrow range day pattern on Monday led to an upside breakout on Tuesday, and an ability to close over 1210 should lead to a test of the year’s high around 1220. On the downside, staying over 1200 (the horizontal line on the chart) helps the market maintain a bullish posture. MACD indicates that higher price levels are likely.
Stocks have been aided by decent earnings (for the latest quarter), mergers and acquisitions news, and strong inflows into stocks. In addition, the continued low rates on Treasury securities make stocks a relatively attractive investment. A continued stock rally will depend on the prospects for further stabilization of the Middle East (and the related impact on energy prices), the continued appetite from overseas for US equities, and the course of US interest rates. There has been discussion that the Federal Reserve may move to a neutral interest rate stance at the next FOMC meeting, reflecting both a belief that inflation will continue at its low level and worries over slowing economic activity.S&P 500 Futures Quotes + Charts
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Interest Rate Futures
Treasury notes started out strongly last week, as the weak payroll growth in January led to thoughts that the Fed might move to a neutral posture at its next meeting. This week’s big news is the report on foreign purchases of US treasuries on Tuesday, and Greenspan’s Humphrey Hawkins testimony on Wednesday and Thursday.
The March Ten year held broken resistance at 112-16 last week, and appears ready for an up week this week. MACD continues to forecast higher prices, with 112-30 as the first upside objective. This level represents a 50 percent retracement of last week’s decline. Regaining 112-30 should allow us to test the yearly high at 113-12.5. On the downside, critical support remains at 112-16 (the horizontal line on the chart). Interest Rate Futures Quotes + Charts
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Eurocurrency Futures
The Eurocurrency started out last week on a down note, falling out of the wedge formation it had been in for the past month (see chart). The area around 127.40 held last week, and the tight ranges of Tuesday and Wednesday led to Thursday’s rally. The narrow range/inside day pattern we saw on Friday led to the upside breakout on Monday. This rally took us to the downtrending resistance line, which coincides with resistance at 130.00. A move over 130.00 takes us to resistance at 131.00, then 132.00. MACD is at oversold levels, and hints at upside follow through on a rally attempt.
Fundamentally, the Euro benefited by comments from ECB bankers, who said that continued low rates could lead to Eurozone inflation. This was the first discussion in some time indicating that the ECB might start looking at interest rate hikes.Eurocurrency Futures Quotes + Charts
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Gold Futures
Gold rejected lower prices last week, as fears of a gold sale by the IMF waned. The selloff in the Dollar late last week aided last week’s recovery. The rally was helped along on Monday, as US officials said they would veto a potential gold sale by the IMF. For the coming week, look for Gold to track the Dollar. As such, Greenspan’s Humphrey Hawkins testimony on Wednesday and Thursday will be the big fundamental focus of the week.
For this week, the $420 level remains the key support for gold bulls. If we can stay over $420, expect a test of resistance at the January channel highs around $430. If we can take out $430, look for a rally to $450. Gold’s chart still looks bullish; the biggest worry for gold bulls may be silver, which has risen 13% in the last four trading sessions. A correction may be in order for silver, which would serve as a drag on gold. Gold Futures Quotes + Charts
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Crude Oil Futures
Crude Oil had a strong week last week, as the effect of the bearish reaction to the Iraqi elections faded. The International Energy Agency forecast robust demand for crude oil; in addition, tightening of US product stocks and the war of words with Iran are also supporting crude. Continuing economic strength and the desire of OPEC to contain production should keep demand and price relatively high this year.
For this week, expect 45.00 to serve as good support for March Crude. The rise in momentum (see chart) is warning that the market needs to correct. I would look at selloffs as a buying opportunity this week. Look for 48.00 to be resistance, a move over 48.00 should lead to a test of 50.00. Crude Oil Futures Quotes + Charts
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Wheat Futures
Wheat started out this week with a bang, as the extreme fund short position shown in the last Commitment of Traders report spurred Monday’s buying. There was talk early this week that the Chinese were looking to buy wheat from Argentina, and their return to the market certainly helped prices. In addition, traders are concerned over the quality of the US winter wheat crop. In general, it appears that the market has simply tired of the downside for now, and is ready to squeeze the commodity fund short positions.
Friday’s narrow range/inside day setup (in May Chicago Wheat), led to Monday’s rally, and reinforced the bullish tone of last week. Look for resistance at 313 early this week, with an upside objective at the yearly high around 320. Clearing 320 could take us up to 335. Wheat Futures Quotes + Charts
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Soybean Futures
What a difference a week makes! A couple of weeks ago no one wanted to own soybeans, now it appears no one wants to be short. Parts of Brazil haven’t had rain for nearly three weeks, and while there’s no consensus as to how wide an area has been affected, we've gone from expecting a perfect crop in Brazil to seeing some problems. In addition, the drop in bean prices has helped draw the Chinese back into the market. I think we'll need to break again before planting season, but for the time being, the path of least resistance is higher, with 550 the next objective for May Soybeans. MACD has turned up from oversold levels, and will tend to support rallies from these price levels.Soybean Futures Quotes + Charts
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